An activity base is said to be a "driver" of overhead costs when the activity base:
A)Is independent of the amount of overhead cost incurred.
B)Results in an overhead application rate greater than 100%.
C)Is a causal factor in the amount of overhead cost incurred.
D)Is the largest of the various types of expenditures classified as manufacturing overhead.

Question

Quizplus · Accepted Answer

A driver of overhead costs is a causal factor in the amount of overhead cost incurred. It is used to allocate the overhead costs to the products or services being produced. The activity base should have a cause-and-effect relationship with the overhead costs in order to accurately allocate costs. Therefore, option C is the best choice. Option A is incorrect because the activity base should have a relationship with overhead costs. Option B is incorrect because an overhead application rate greater than 100% would not be possible. Option D is incorrect because the size of the expenditure does not determine whether an activity base is a driver of overhead costs or not.

An Activity Base Is Said to Be a "Driver" of Overhead